Archive for category Daily Service
Huffington Post article by Cathy Meyer
We all know that marital debt, just like marital assets, are split during divorce. Something not discussed though is the fact that a contract you have with a debtor doesn’t change regardless of who is ordered to pay which debt.
The only agreement a creditor has to abide by is the one you signed with them. It doesn’t matter if your final decree of divorce states that your ex is to pay the car loan. That does not release you of your obligation for the loan. It is for this reason that I suggest couples pay off as many debts as possible before filing for a divorce.
If your ex is ordered to pay debts X, Y and Z and fails to do so, a creditor will come after you if your name is also on the loan agreement. That is the most important thing you need to know when it comes to dividing debt during the divorce process.
How About Debt You Weren’t Aware of?
If you live in a community property state, you can be held responsible for debt incurred by your spouse even if you were unaware of the debt and did not sign an agreement with a creditor. In other words, in a community property state marital debt is considered joint debt — debt that you are both responsible for. A creditor can come after you for payment of debt you did not create.
To help protect yourself if you live in these states, full financial disclosure is important during settlement negotiations. You should make a detailed list of all account numbers, amounts owed, and who is responsible for each of the debts. Ordering a copy of your credit report can help you get started.
How to Protect Yourself if Your Ex Doesn’t Pay
Let’s say it is decided that the marital debt will be split equally between you and your ex. You are to pay half; he is to pay the other half. What can you do if he doesn’t pay his half and you have to pay to protect your credit rating? You can’t do anything unless you have an indemnity clause added to your divorce settlement agreement during negotiations.
If worded properly, an indemnity clause will allow you to take your ex back to court for any money you had to pay as a result of the loan going into default. Consult with your lawyer about this before signing the final papers.
Refinancing Secured Loans
It isn’t uncommon for a divorce attorney to suggest that you have your name removed from the title of a marital home or automobile. DO NOT do this if there is an outstanding loan and your name is on the loan agreement.
You need to insist that any property that is still under a finance agreement be refinanced in your spouse’s name alone. For example, if your ex is going to keep the car and the loan is in both names, your name needs to be removed from the loan and this can only be done if he refinances the loan.
Make sure that there is language in your final decree of divorce that states the property is to be refinanced and the time period in which he is to complete the refinance. There should also be language in your divorce decree that states the consequences to your ex if he does not follow through with refinancing the property.
For example, if he remained in the family home and is supposed to refinance the home into his name within six months of the divorce and doesn’t do so, the home will be put on the market and sold. Knowing he may lose a property to sale can often motivate an ex to do the right thing.
The Bottom Line
A final decree of divorce is nothing more than a promise on a piece of paper. Just because a judge signs it and your ex is ordered to follow it doesn’t mean he will. What you have to do is think of all the possibilities and how to protect yourself in any situation that may arise once you are divorced. To do so you must:
– Pay off as much debt as possible before filing for divorce.
– Make sure you are aware of all debt in his name, your name or both names.
– Add an indemnity clause to your divorce settlement agreement if needed.
– Make sure debt he is ordered to pay is refinanced
Posted by: Steven Maimes, The Trust Advisor
WSJ article by Brett Arends
History Suggests Many Delude Themselves About Real Returns
What returns are you expecting from your investments? Fifteen percent a year? Ten? Do you have no idea at all?
The stock market swung sharply at the start of last week after the Russian invasion of Ukraine—the Dow Jones Industrial Average dropping more than 200 points before recouping all its losses and hitting highs as the week progressed.
But while eyes are on the short term, for most investors the more important question is the long term.
Your long-term expectations are key to your financial plan. They determine how much you need to save to reach your financial goals, what goals you are likely to attain, when you’ll be able to retire—and, for some, whether you’ll be able to retire at all.
If you follow popular rules of thumb, or the standard presentations from Wall Street banks, mutual-fund companies or professional financial advisers, you may be expecting somewhere between 5% and 10% a year.
Money managers point to historical data going back to the 1920s to show that in the past stocks have produced total returns of about 10% a year over the long term and bonds, about 5%—meaning a standard “balanced” portfolio of 60% stocks and 40% bonds would earn just over 8% a year. (Naturally, their legal departments quickly add that the past is no guide to the future.)
Are these forecasts realistic? Are they sensible? Are they even based on actual logic or a correct reading of the past data?
A close look at the data reveals a number of disturbing errors and logical flaws. There is a serious danger that investors are deluding themselves and that returns from here on may prove far more disappointing than many hope or believe.
This has happened before. Money invested in a balanced fund of stocks and bonds at certain points in the past—such as in the late 1930s, or during the 1960s and 1970s—ended up losing money for many years, after accounting for inflation.
Far from making an annual profit, investors went backward in real, purchasing-power terms. And those losses were even before deducting costs or taxes.
Wall Street strategists Rob Arnott and the late Peter Bernstein, in research published just after the 2000 dot-com crash, explained the dangers of trying to extrapolate from the past. From the 1920s through the late 1990s, they said, investors benefited from some huge one-off gains that couldn’t be—or were unlikely to be—repeated.
Wall Street won’t tell you that.
For example, from the 1920s through the early 1990s stock investors collected an average annual return of 4% just from their dividends. Today the figure is less than 2%. Logically we should expect future total returns to be at least two percentage points lower.
Back in the 1950s, U.S. stocks traded at an average of about 11 times the previous year’s earnings, according to analysts. In the 1940s and the early 1980s, valuations fell as low as eight times earnings.
But after 1982 they became sharply revalued upward. Today the S&P 500 trades at about 18 times earnings. To expect the same again is to engage in Bubble Logic—the belief that things will keep going up simply because they have.
If stocks were simply to fall back to valuations considered normal in the 1950s, the Dow Jones Industrial Average would be about 10000, not 16400.
And then there is the small matter of inflation—which was effectively zero in the 1920s, under the gold standard, but hit 14% a year in the 1940s and again in 1980. Inflation makes returns look better than they really are. Your stocks double, but so does your rent and the cost of milk.
Of the compound returns of the stock market since the mid-1920s, more than 90% are simply the product of inflation. The returns aren’t real.
Strip out these one-off gains and inflation, Rob Arnott recently suggested, and investors ought more realistically to expect about 1.5% a year plus dividends—meaning, in the current environment, an annual return of about 3.5% in real terms. That’s a far cry from 10%.
Invest $10,000 for 20 years at 10% and you’ll have $70,000. At 3.5%, you’ll have just $20,000.
If stock returns risk disappointing many optimists, prospects for bonds seem, if anything, even gloomier. It’s highly unlikely that anyone will earn returns of 5% a year from the bond market when the Barclays Aggregate U.S. Bond Index offers a yield to maturity of about 2.2%.
While financial advisers may cross their fingers and hope for a repeat of the past, they should be careful about what they wish for.
That’s because several of the stock-market indicators which have most reliably predicted a slump over the past century are doing so again. The so-called Cyclically Adjusted Price/Earnings ratio, also known as the Shiller P/E ratio after Yale economist and Nobel laureate Robert Shiller, compares share prices to average per-share earnings from the past 10 years.
The latest boom in the stock market has taken this measure above 25—an alarming level. The market topped 25 on the Shiller P/E just before the great Crash of 1929, for example, and before the 2000-2002 and 2007-2009 slumps. A Shiller P/E above 20 has usually been associated with poor stock-market returns over the following decade.
Stock Prices vs. Revenues
Similar readings can be found by looking at another measure, Tobin’s Q, named after late Nobel-prize winning economist James Tobin. This compares stock prices to the cost of replacing company assets. U.S. stocks today also look expensive, by historical standards, when compared with annual domestic output or corporate revenues.
As a general rule, if you had invested in stocks when these indicators said stocks were cheap, you did very well indeed over the next 10 or 20 years. But if you had invested in stocks when these indicators said stocks were expensive, you did poorly. Right now all of these measures are signaling that stocks are expensive (as they have been for some time).
It’s possible that these indicators are wrong this time. Corporate profits are buoyant, after all. The economy is recovering, house prices are up, and the labor market continues to heal. It isn’t hard to see why investors are optimistic.
It’s a feature of bull markets that the voices of caution gradually get drowned out completely by the growing chatter of the ticker tape and the ringing of cash registers.
The bears look and sound more foolish, until they finally give up and fall silent completely. It’s an old saw on Wall Street that the boom won’t end until the last bear turns bullish.
The issue is whether investors are adequately prepared for the very real possibility of disappointment. As ever, the wisest philosophy is to hope for the best, but prepare for the worst.
Posted by: Steven Maimes, The Trust Advisor
From The Huffington Post
Someone at German car-tuning firm Carlsson must have been listening to Trinidad James while working on the Mercedes-Benz S-Class CS50 Versailles, because this car is the embodiment of “all gold everything.”
That’s right, the souped-up CS50 Versailles is covered in real gold, both inside and out. Carlsson, which specializes in customizing Mercedes-Benz vehicles, used more than 1,000 sheets of gold leaf to adorn the car’s exterior. In addition, almost $16,500 worth of the shiny stuff coats the CS50 Versailles’ interior, adorning various buttons, knobs and air vents.
Carlsson plans to make available only 25 of these swanky models, and former customers have already claimed “more than 10″ of those, according to the company.
Though Carlsson did not tell us how much the golden car sells for, we have a feeling that if you have to ask, then you probably can’t afford it.
If you do find yourself the titleholder of a CS50 Versailles, know that this means it’s now entirely possible to get out of your gold car, wearing your gold Rolex, while talking on your gold iPhone, as you walk into Serendipity 3 to eat your gold ice cream sundae. Ah, the high life.
Posted by: Steven Maimes, The Trust Advisor
Reuters news by Jennifer Ablan
Bill Gross, the co-founder and co-chief investment officer of Pacific Investment Management Co, has accused departing CEO Mohamed El-Erian of seeking to “undermine” him by talking to The Wall Street Journal about deepening tensions between the two executives who have been jointly running the world’s largest bond house.
Gross told Reuters that he had “evidence” that El-Erian “wrote” a February 24 article in the Journal, which described the worsening relationship between the two men as Pimco’s performance deteriorated last year, including a showdown in which they squared off against each other in front of more than a dozen colleagues at the firm’s Newport Beach, California headquarters.
Gross, who oversaw more than $1.91 trillion in assets as of the end of last year and who is known on Wall Street as the ‘Bond King’, said in a phone call to Reuters last Friday: “I’m so sick of Mohamed trying to undermine me.”
When asked if Reuters could see the evidence about El-Erian and the allegation he was involved in the article, Gross said: “You’re on his side. Great, he’s got you, too, wrapped around his charming right finger.”
He said he knew that El-Erian, who had been widely seen as the heir apparent to Gross but is now due to leave in mid-March, had been in contact with Reuters as well as the Wall Street Journal.
Gross indicated he had been monitoring El-Erian’s phone calls.
A Pimco spokesman said in an emailed statement: “Mr. Gross did not make the statements Reuters attributes to him. He categorically denies saying this firm ever listened in on Mr. El-Erian’s phone calls or that Mr. El-Erian ‘wrote’ any previous media article.”
He added: “As a regulated company, PIMCO is required to retain records of its employees’ communications to help ensure compliance with the firm’s policies.”
Pimco’s owner, German financial services company Allianz SE, was not available for comment.
El-Erian, who was named to a part-time position as chief economic adviser to Allianz last week, could not be reached for comment.
When asked about Gross’s claim that El-Erian “wrote” the article, a spokeswoman for Dow Jones, the publisher of The Wall Street Journal, said: “This is an astoundingly incorrect claim about a thoroughly reported article that was in the best tradition of The Wall Street Journal.”
El-Erian signed a non-disclosure agreement as part of his Pimco departure terms, according to a source close to him. Reuters couldn’t ascertain the details of his exit package, including its confidentiality aspects or the size of his payout.
The February 24 Journal article detailed the unraveling of the once vaunted investment and management partnership between Gross and El-Erian. The article revealed the increasing strains between the two executives over Gross’s combative management style and whether he should trust other investment managers more.
“I have a 41-year track record of investing excellence,” Gross told El-Erian one day last June, according to the Journal article, which cited two witnesses as its source. “What do you have?”
“I’m tired of cleaning up your s—,” El-Erian responded, referring to conduct by Gross that he felt was hurting Pimco, these two people recalled, according to the article.
A source who was present at the time confirmed to Reuters that the report of the exchange was accurate.
SOME PIMCO INVESTORS ON EDGE
The latest signs of a rift between Gross and El-Erian, who once praised each other fulsomely, come as Gross is grappling with clients who are also turning their backs on the very asset class that has made him famous.
That is happening partly because the Federal Reserve continues to reduce its controversial bond buying that has provided stimulus to the U.S. and world economies.
Pimco saw its assets under management shrink by $80 billion in 2013 due to outflows and negative returns, according to Morningstar.
In February, Gross’s flagship Pimco Total Return Fund had $1.6 billion of net outflows, its 10th consecutive month of outflows, and it lagged 71 percent of its peers with a return of just 0.52 percent last month, according to Morningstar. In 2013, it suffered a negative total return of nearly 2 percent.
In mid-February, Gross sought to reassure the firm’s clients about the new leadership structure he has put in place since Pimco’s announcement of El-Erian’s departure on January 21.
Gross called his announcement of six new deputy chief investment officers a “significant improvement” from Pimco’s previous structure, which concentrated nearly all investment strategy decision making onto the shoulders of Gross and El-Erian.
“I’ve never seen Bill and Pimco scrutinized like this before. This is the most attention I have seen on them,” said Eric Jacobson, Morningstar senior analyst who has covered Pimco for nearly two decades. “A couple of high-profile stumbles and mediocre showings, coupled with some outflows – and with no identified successor for life after Bill – clearly has some investors on edge.”
Still, Jacobson said that Gross holds one of the best records in the bond industry with the Pimco Total Return fund’s 10-year and 15-year annualized returns at 6.04 percent and 6.68 percent, respectively. The fund’s returns are beating 96 percent of its peers for those time periods, he added.
Posted by: Steven Maimes, The Trust Advisor
WSJ article by Neil Shah
Surging Stock Market and Rising Home Values Deliver Benefits, Especially for Affluent
Americans’ wealth hit the highest level ever last year, according to data released Thursday, reflecting a surge in the value of stocks and homes that has boosted the most affluent U.S. households.
The net worth of U.S. households and nonprofit organizations rose 14% last year, or almost $10 trillion, to $80.7 trillion, the highest on record, according to a Federal Reserve report released Thursday. Even adjusted for inflation using the Fed’s preferred gauge of prices, U.S. household net worth—the value of homes, stocks and other assets minus debts and other liabilities—hit a fresh record.
The Fed report shows Americans have made considerable progress repairing the damage inflicted by the housing crash and recession, which ran from December 2007 through June 2009 and decimated the wealth of a wide swath of the nation. But the rebound, while powerful, has been tilted in a way that limits the upside for the broader U.S. economy and is increasingly leaving behind many middle- and lower-income Americans.
“Wealth inequality…has increased over time,” said William Emmons, an economist at the Federal Reserve Bank of St. Louis. “So, there seems to be a disconnect: There are big wealth gains, but not much follow-through on consumer spending.”
Driving most of the past year’s gains was a record-setting rally in the U.S. stock market, which saw the broad Standard & Poor’s 500-stock index soar 30% last year. The increase in stock prices has disproportionately benefited affluent Americans, who are more likely to own shares. The value of stocks and mutual funds owned by U.S. households rose $5.6 trillion last year, while the value of residential real estate—the biggest asset for middle-income Americans—grew about $2.3 trillion, the Fed figures show.
Holdings of stocks and bonds as a share of overall net worth, at 35%, is at the highest level since the dot-com bubble burst in 2000, Fed data show. That means that even as wealth increases, it’s increasingly going to the affluent.
In addition to the affluent, much of the wealth surge is going to older Americans. Both groups are less likely to spend their gains and more likely to save, Mr. Emmons said. Meanwhile, sheer demographics—the retirement of the baby boomers and America’s aging population—are increasing the ranks of the nation’s savers.
The upshot: While American households overall are getting wealthier, the benefits for the economy may prove limited until such improvements reach more people.
Younger families in particular continue to lag behind in the wealth recovery. The average young family—led by someone under 40—has recovered only about a third of the wealth it lost during the crisis and recession, the St. Louis Fed said in a recent study. By contrast, the average wealth of middle-aged and older families has recovered to roughly precrisis levels.
Tyler Martin, a 26-year-old who lives in San Francisco and works in the financial-services industry, is among those watching the recent advances carefully. Mr. Martin says he feels better now that the economy isn’t cratering the way it was during the financial crisis and recession.
He is confident enough to ponder big financial decisions, like taking on a mortgage. But he isn’t being prompted by any improvement in the economy or his wealth. Instead, San Francisco’s escalating rent costs have pushed him into buying.
Mr. Martin and his fiancée wanted to take advantage of historically low interest rates, but they have still struggled to put together a down payment and are remaining cautious about their spending. Any increases in stocks, meanwhile, don’t mean all that much to him. “My feeling of wealth is not correlated to the stock market,” he said.
The Fed’s report did have some less-ambiguous good news. One reason the economic recovery has been so weak since the end of the recession is that many Americans have been digging out of a mountain of debt. Now those debt burdens are easing, as total U.S. household debt was about 109% of disposable income in the fourth quarter, down from a peak burden of around 135% in 2007, Fed data show. A more manageable debt burden could prompt American households to borrow and spend more at a time when the job market remains sluggish and income growth weak.
Indeed, overall household borrowing rose an annualized 0.9% last year, the biggest percentage rise since 2007. Last year also saw the smallest decline in mortgage debt since 2008, a sign that fewer Americans are entering foreclosure and some more are taking out new mortgages. Other types of consumer credit grew 6% last year, though much of these gains were student loans.
As the housing-market recovery continues, more Americans are regaining equity in their homes, which makes it easier for them to trade up, refinance debts and borrow. A measure of owners’ equity as a share of the value of real-estate holdings hit 51.7% in the fourth quarter, up from 50.6%.
While a string of weak readings on job growth, retail sales and the housing market have raised doubts recently about the strength of the recovery, economists are hoping some of these improvements in household finances will help growth finally pick up this year at a rate more in line with historical trends.
“There seems to be a willingness to borrow on the part of consumers and a willingness to lend on the part of banks,” said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities. “That would suggest we are getting that trigger for a virtuous cycle.”
Still, economists fret that the disproportionate share of benefits going to the well-off is contributing to the two-tiered nature of the recovery and will exacerbate wealth inequality.
Spending on luxury goods has generally held up in the aftermath of the recession. But companies whose fortunes are linked to the pocketbooks of average Americans aren’t doing as well.
“You’re seeing a tale of two cities, with the lower half of the economy tending to get hurt, and the upper half doing fine,” said John Hayes, chief executive of Ball Corp., a maker of metal packaging for the beverage and food industries. “We do our business in the middle, so that is why things are tepid for us.”
The firm, based in Broomfield, Colo., had a tough time in the first half of 2013. While revenue picked up pace in the second half, conditions are “nothing to write home about,” Mr. Hayes said. Last year’s sales, about $8.5 billion, were roughly flat compared with 2012.
Mr. Hayes said his firm’s revenues rise when middle-income Americans feel more comfortable about spending, such as construction workers buying more energy drinks at convenience stores. Unemployment and underemployment still remain high among people in their 20s, he said, translating into less spending on products like soda and beer.
“Consumers continue to be hampered,” he said.
Posted by: Steven Maimes, The Trust Advisor
WSJ article by Rachel Feintzeig
What’s the difference between a family firm and a regular business? According to one new study, an empty corner office.
Professors at Harvard Business School, the London School of Economics and Columbia University’s business school examined the schedules of 356 chief executives in India and found that family CEOs worked 8% fewer hours than managers without genetic ties to their companies. The researchers found similar disparities in Brazil, Britain, France, Germany, Italy and the U.S.
The incentives and risks that motivate professional CEOs to burn the midnight oil just might not be a factor for family CEOs, said Raffaella Sadun, a Harvard strategy professor and one of the study’s authors.
“The consequences of underperforming…are very different,” she said. “How easy is it to fire your brother?”
Overall, the jury is still out on whether family-owned businesses perform better or worse than firms with outside CEOs, say researchers and consultants who study the topic.
Morten Bennedsen, academic director of Insead’s Wendel International Centre for Family Enterprise, said that the firms often outperform nonfamily companies when the founder is at the helm but falter when passed down to the next generation. Fewer than 30% of family businesses are still standing by the third generation of leadership, according to research cited by McKinsey & Co., though a 2011 paper in the journal Family Business Review noted similar survival rates in nonfamily firms.
What does seem clear is that family CEOs spend their time differently.
Steven Gewirz, a third-generation executive at Potomac Investment Properties, a family-owned commercial and residential real-estate firm in Washington, D.C., usually leaves the office between 4:30 p.m. and 5 p.m., allowing him to eat dinner with his family. In the summer, he’ll take three-day weekends at his vacation home in Rhode Island, and he enjoys seven- to 10-day-long vacations several times a year.
Mr. Gewirz, who is the company’s CFO, and his brother, its president, pass on deals when they feel they are “busy enough” with other projects.
The business is performing well, he said, and will give his children financial freedom to pursue whatever career paths they want. “We tend to think longer term than the typical real-estate development firm,” he said.
Wesley Sine, a researcher at Cornell University’s Johnson Graduate School of Management who studies entrepreneurship, said that executives who are more oriented toward family and establishing a legacy are more likely to favor leisure.
“You have a perspective that life is more than money,” he said.
To be sure, Ms. Sadun acknowledged, hours worked is a “very crude measure of effort.”
Mr. Bennedsen believes family CEOs might be adding value to their firms in ways not captured by the hours they are formally working. They tend to focus more on networking at cocktail parties or hammering out contract details at sporting event, he said, versus professional CEOs who are more “implementers,” carrying out plans at their desks.
And many family CEOs dispute the idea that they’re skipping out early.
Charles S. Luck IV, CEO of construction building materials business Luck Cos., doesn’t think he works fewer hours than an outside manager. Mr. Luck spent several years as a Nascar racer before joining the family business and said he had to fully exhaust his love of the sport before he was ready to dedicate himself to the company his grandfather built.
He said less time in the office might be a symptom of a family member who is only devoting himself to the firm out of a sense of obligation.
“When they are raised with the mind-set that they are entitled because of [what] their last name is, that creates a really unhealthy situation,” he said.
Posted by: Steven Maimes, The Trust Advisor
NYT article by Farhad Manjoo
Nearly half a billion dollars has gone missing, and nobody knows how. Some say there was outright theft. Others suspect fraud. Many blame lax controls, poor oversight and, above all, a reckless, globe-spanning, Wild West culture — a culture that everyone agrees is ripe for wholesale reform.
I’m not talking about Bitcoin. I’m talking about Citigroup, which disclosed last week that its Mexican banking unit lost $400 million in a contracting swindle involving a shaky oil services company.
To backers of Bitcoin, the Citigroup revelation was a convenient rhetorical weapon: Look, the digital currency’s boosters say, if one of the world’s largest and most tightly regulated financial institutions can also lose a boatload of money, why is everyone getting so bent out of shape about the $470 million collapse of Mt. Gox, once the largest Bitcoin exchange? In the last few years the conventional financial system has lurched from one new fraud to another — from Bernie Madoff to MF Global to the hacking at Target — and yet nobody suggests abandoning dollars as a means of trade. Why aren’t we just as forgiving in our approach to Bitcoin?
It’s a tidy argument. But the comparison between Citigroup’s loss and the fall of Mt. Gox highlights just how unusual and untamable digital currency can be. When scandal engulfs traditional financial institutions like Citigroup, there are investigations and calls for greater oversight — human oversight. Bitcoin, though, was born of mistrust of humans and their institutions. It rests on the belief that financial safety emerges from the integrity of the technology, a computer code that controls a payment system, rather than the trustworthiness of the humans who participate in it.
To save their nascent currency, Bitcoin’s backers may be forced to alter their philosophy and embrace the same messy humans — auditors, insurers and even regulators — that the currency’s most ardent supporters have long abhorred. This raises two difficult questions: Can human oversight integrate into Bitcoin’s free-for-all ethos quickly enough to render Bitcoin safe? And, can Bitcoin be made safer without tamping down on the very openness that proponents say makes Bitcoin such a cheap, efficient and innovative financial platform? At the moment, the answers are still very much up in the air.
Some in the more mainstream part of the Bitcoin world — firms that have sought venture capital and are trying to appeal to ordinary investors and large businesses — say they’re up to the challenge. They are working to set up stringent technical and financial audits of trading sites, and to create insurance mechanisms so that holders of Bitcoin won’t be wiped out by catastrophic losses like the one at Mt. Gox. There are even efforts to pursue government oversight.
“We are reaching out to regulators, because we do want Bitcoin to be a regulated industry,” said Brian Armstrong, the co-founder and chief executive of Coinbase, a site that allows people to purchase, store and trade with Bitcoin and that has received investments from some of Silicon Valley’s leading venture firms. He said he had met with state and federal regulators to discuss Bitcoin. “Even if everybody in Bitcoin doesn’t believe in regulation, we think it’s one way to help Bitcoin grow up and have more transactions flow over the network.”
The most straightforward way of improving the safety of Bitcoin is also the most obvious: running independent audits of sites. Mt. Gox, which acted as a Bitcoin exchange site as well as a “wallet” that stored people’s coins, never once offered a public accounting showing it possessed all the funds it claimed to be storing, nor showing the technical methods it was using to safeguard those funds.
The site’s opacity will make investigating its loss more difficult. Theories about how Mt. Gox really lost all that money, and who has it now, have consumed Bitcoin discussion sites for much of the last week. Mt. Gox has said it was hacked over a period of years, apparently through a well-known but minor flaw in Bitcoin known as “transaction malleability.”
The flaw allows hackers to alter a Bitcoin payment while it’s in progress, potentially confusing a trading site into issuing a double payment. But in the absence of an audit trail, many in the Bitcoin world have trouble believing the hacking claim. On the other hand, every other leading theory for how Mt. Gox might have lost a half-billion dollars — whether government theft or cryptographic error — has been debunked, too. It’s possible that we’ll never really know what happened to that half-billion dollars. It has simply vanished.
Mr. Armstrong said that to prevent something similar from ever happening at Coinbase, the firm plans to hire independent auditors to conduct a public investigation of both its Bitcoin and dollar holdings. The site also recently published a “security audit” of its technical processes, which showed it did live up to its claim of storing most of its Bitcoin holdings in “cold storage,” meaning on machines that are not connected to the Internet.
Then there are more far-reaching efforts to secure Bitcoin. Elliptic, a British Bitcoin storage site, offers optional insurance on your holdings. For a fee of about 2 percent of your coins per year, the site promises to repay you if theft or negligence results in the loss of your funds. Another firm, Inscrypto, is working on what it calls a “decentralized version of the F.D.I.C.,” a system similar to the Federal Deposit Insurance Corporation, which protects your checking account. The system, which is still a work in progress, is far more complex than traditional deposit insurance, using derivative trades to protect against price swings or other dangers of Bitcoin. At the moment, it’s unclear how much it will cost, or even if it will work. The company, like several others in the Bitcoin world, declined to be quoted on the topic.
To some supporters of Bitcoin, the rise of these consumer protection ideas is itself proof of the digital currency’s superiority over old-fashioned currency. One of Bitcoin’s most cherished technical tenets is openness, the idea that anyone, anywhere, can set up a trading node on the payment network. Openness lowers barriers to entry; it allows sites with newer, safer, more innovative financial ideas to easily peddle their wares, while rickety concerns like Mt. Gox die under their own incompetence. It sets up a Darwinian race toward a safer Bitcoin.
In the short run, this dynamic causes terrible consequences for users, but eventually, Bitcoin’s supporters say, the worst problems will get ironed out. One frequent analogy in the Bitcoin world is to the early days of the Internet and web. Just a decade and a half ago, the web was a rough-and-tumble network ruled by pornography and illegal file-trading, a place where fraud flourished and danger lurked around every corner. Today the web is still all that, but it is also, in its more respectable corners, the place where you post pictures of your children, where you shop for Christmas presents, where you hold secure conversations with your doctor and where companies make billions of dollars every year without worry of being defrauded.
“The history of Bitcoin is going to be largely the same,” Mr. Armstrong said. It starts with a “fundamental breakthrough that lowered the cost of payments, but there will be a lot of details to get right, and like on the early Internet, it will take time for the fundamental infrastructure to get established.” Once that happens, Mr. Armstrong says he believes that digital currencies will be unstoppable. Unless, of course, the thought of a half-billion dollars disappearing without a trace makes people queasy enough to stay away from Bitcoin for good.
Posted by: Steven Maimes, The Trust Advisor
Fidelity Study Uncovers Five Key Traits of “Pacesetters” and Five Challenges to Overcome
Fidelity Institutional, the division of Fidelity Investments that provides clearing, custody and investment management products to registered investment advisors (RIAs), banks, trusts, broker-dealers and family offices, today released findings from the inaugural Fidelity Bank Wealth Management Study, for which the firm interviewed more than 140 senior bank executives.
The first-of-its-kind study found that many banks are repositioning for growth, and looking toward new revenue opportunities, particularly from fee-based businesses like wealth management. This shift comes after several years in which banks were focused primarily on compliance and cost management. Over half (55 percent) of the bank executives who participated in the Fidelity Bank Wealth Management Study expected the revenue contribution from their wealth management practices to grow 25 percent or more in the next five years.
Although the future of wealth management appears positive for banks overall in this study, given the expected growth rate, a group of Pacesetters stood out from the pack with wealth management typically estimated to represent 35 percent of total bank revenue in the next five years, versus 20 percent for other banks. The study uncovered five key traits of Pacesetters and five challenges to overcome for continued success:
Key Traits of Pacesetters
1. Leadership commitment and a continued focus on wealth management
2. Integration, not competition, with other bank lines of business
3. Comprehensive wealth management service offerings
4. Leveraging the RIA approach
5. Outsourcing non-core back office operations
5 Challenges to Overcome
1. Investor perceptions
2. Internal development and training
3. Streamlining platforms
4. Recruiting and retaining advisors with wealth management expertise
5. Keeping up with technology
“While some may assume that Pacesetters were the largest banks or clustered in certain regions, our study found that what really set these firms apart was how they run their wealth management practices,” said Mike Norton, head of the banking segment for Fidelity Institutional. “Pacesetters recognize that wealth management not only offers significant revenue-generating potential for banks, it also presents an important client engagement and retention opportunity.”
Five Key Traits of Pacesetting Firms: It Starts at the Top
While Pacesetting firms held almost twice the assets of other banks ($6.0 Billion for Pacesetting banks versus $3.3 Billion), their size and structure closely mirrors all banks in the survey, indicating that size of bank is not the greatest determinant of success. The study uncovered that five key traits set Pacesetters apart:
1. Leadership commitment and a continued focus on wealth management — The study showed that, typically, senior executives at Pacesetters were highly focused on the wealth management business, and committed to growing and developing it. This focus can be difficult as one interviewee noted, “I see a challenge in banking, structuring ourselves and ensuring the senior leadership has enough autonomy to be entrepreneurial and run their line of business.”
2. Integration, not competition, with other bank lines of business — When asked if they competed somewhat with other parts of their banks for client assets, 26 percent of all bankers said yes. However, Pacesetters were having more success addressing the issue — only 16 percent cited this competition, compared to 35 percent of other banks. Respondents noted that integration was key, “[Clients] don’t feel they’ve got a relationship with a commercial bank and then a separate relationship with wealth. It’s one wallet from the client’s perspective.”
3. Comprehensive wealth management service offerings — Many respondents defined wealth management as a holistic relationship that goes beyond deposits and lending — all wrapped together with a high level of service. In the words of one banker surveyed, “It’s the bringing together of all of our capabilities to help clients build, maintain, protect and transfer wealth.” According to the study, Pacesetters were more successful in executing on this philosophy and focused less on products that may be considered more commoditized, such as insurance and annuities.
4. Leveraging the RIA approach — While the study showed that stand-alone RIAs were not viewed as a significant competitive threat for wealth management practices at banks, a large proportion of Pacesetters (83 percent) were using RIAs as part of the delivery model. An interviewee elaborated, “The RIA model I think…will be increasingly popular…Part of that is fee-based. Part of that is a little bit more perception.”
5. Outsourcing non-core back office operations — When asked about outsourcing, bankers interviewed said, “I think you can outsource most of the functionality in back office.” The study showed that Pacesetters seemed to have experienced more success than other banks with outsourcing non-core operations and increasing advisor productivity.
Five Challenges to Overcome for Continued Growth
While banks’ wealth management practices are doing many things right, Pacesetters surveyed felt they needed to continue to hone their wealth management practices and manage:
1. Investor perceptions — Eighteen percent of Pacesetters felt clients think banks lack the investment expertise or breadth of services that other channels offer. As one banker put it, banks need to “overcome the perception by some that a bank is only there for loans and deposits and that wealth management is not a strength of an individual bank.”
• Take-away: Ensure leadership is focused on showcasing the breadth of the bank’s wealth management offerings and consider partners that can help improve branding and marketing efforts.
2. Internal development and training — Thirty percent of Pacesetters felt they needed training to help grow the business — such as how to increase share of wallet or how to get referrals. At the same time, nearly one-quarter of Pacesetters cited cultural differences between the banking and wealth management sides of the business as a challenge.
• Take-away: Devoting additional resources to training can help improve capabilities and confidence levels, while optimizing practice management efforts may ease cultural discord and competition between different areas of the bank. Together, these efforts can help nurture additional and stronger wealth management relationships.
3. Streamlining platforms — Nearly one-quarter (23 percent) of Pacesetters said they had isolated and competing platforms across banking functions with bankers surveyed responding, “You have multiple platforms that don’t necessarily talk to each other.”
• Take-away: Banks can benefit from one view of all existing relationships and reduce inefficiencies with a robust platform that can integrate accounts from brokerage to wealth management.
4. Wealth management expertise — Nearly half of Pacesetters (45 percent) said they found it challenging to increase the number of advisors/wealth managers, a critical path to their growth.
• Take-away: In addition to focusing on recruiting efforts, banks may want to consider leveraging an RIA to demonstrate wealth management expertise and expand resources.
5. Keeping up with technology — More than half of Pacesetters (58 percent) felt keeping up with technology was a challenge, as it was for all banks surveyed.
• Take-away: Banks can leverage the scale of outside firms to keep up with ever-changing technology.
Fidelity created the white paper, Perspectives on Wealth Management in Banks: Insights from Pacesetters, to help banks better understand how leading firms have established growing wealth management practices and what steps leaders can take in their own firms. For more details, visit nationalfinancial.com or contact your Fidelity Representative.
About Fidelity Investments
Fidelity Investments is one of the world’s largest providers of financial services, with assets under administration of $4.5 trillion, including managed assets of $1.9 trillion, as of January 31, 2014. Founded in 1946, the firm is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and many other financial products and services to more than 20 million individuals and institutions, as well as through 5,000 financial intermediary firms. For more information about Fidelity Investments, visit www.fidelity.com.
Posted by: Steven Maimes, The Trust Advisor
WSJ Wealth Adviser article by Daisy Maxey
More than a decade of pitching mutual funds and annuities to financial advisers convinced G.C. Lewis of two things: He wanted to become an adviser himself, and building one from nothing would be a huge challenge.
“It’s very difficult today to start a financial-advisory practice from scratch,” says Mr. Lewis. “The old days of cold calling don’t work nearly as well…Today, more investors are looking to find advisers through referrals.”
So Mr. Lewis, who is 35 years old, decided to enter the business by partnering with an adviser who already had an established practice. Tapping into the relationships he had built as a wholesaler, he canvassed literally hundreds of advisers, asking them about their practices and future plans.
That effort led him to Mike Monroe, who ran Atlanta-based U.S. Planning Group. In March, Mr. Lewis purchased the business, which became Lewis & Monroe Wealth Management. Mr. Monroe, 60, remains as a senior partner, and is helping Mr. Lewis learn how to manage the practice, which is a mix of commission- and fee-based accounts.
“Mike and I get along fabulously,” says Mr. Lewis, who is now studying for his certified financial planner designation at the University of Georgia.
Younger advisers looking to enter the business, or to quickly expand a smaller practice, are turning more often to purchasing existing practices. Industry experts see this trend as likely to persist as it becomes harder to grow one client account at a time, and as the ranks of aging advisers looking to exit the business continue to swell.
Many registered investment advisers now understand what a quick boost an acquisition can provide, says David DeVoe, founder and managing partner at DeVoe & Co., a business strategy and merger and acquisition consulting firm serving the wealth-management community.
“If you go back 10 years, RIAs were buying only a small fraction of the advisers that were selling each year, but for the past few years they’ve been one of two dominant buyer categories; it’s them and the consolidators,” such as Focus Financial and Fiduciary Network LLC, Mr. DeVoe says.
In 2013, 70% of financial advisers were 45-years-old or more, and nearly one-third planned to retire within the next 10 years, according to Cerulli Associates. But just 25% of financial advisers have a succession plan in place, a 2013 study by the FPA Research and Practice Institute, a program of the Financial Planning Association, found.
For older advisers looking to retire, or to slowly transition out of the business, but who haven’t identified and groomed an internal successor, selling to a young and ambitious adviser solves the problem. And for the buyer, it shortcuts some of the new hurdles to prospecting for clients.
Cold-calling prospects is an age-old practice in the advisory business. But Gregory Kurinec, a junior partner at Bentron Financal Group, a Naperville, Ill., commission and fee-based advisory firm, says the tactic doesn’t work nearly as well as it did many years ago. With the caller-identification technology most phones now offer, “if it’s not mom, dad, aunt, uncle or grandma, they’re not going to answer,” he says.
Mr. Kurinec, 30, is buying the books of advisers looking to retire or exit the business. “It’s the quickest way to grow a practice,” he says.
He bought his first book of business five years ago from a 70-year-old adviser who wanted to retire, and has done two more deals since. He typically structures deals that allow him to pay for the new business over time and to keep the prior owner on board for at least a year, he says.
It is important to find an adviser with the same values and lifestyle so that clients don’t suffer culture shock, Mr. Kurinec says. Advisers can meet acquisition candidates through various industry group meetings, as he did, or through introductions from other advisers, but shouldn’t expect a purchase to happen overnight, he says. “You can make it part of your plan, but it has to evolve.”
Gabriel Garcia, director of relationship management at Pershing Advisor Solutions LLC, says younger advisers are purchasing businesses in a variety of ways, but much of the activity doesn’t show up in industry data because many transactions are internal. Often, an adviser who has been a member of a firm or a group for years structures a buyout that occurs over time, he says.
Mr. Garcia is now helping a husband-and-wife team which runs a sizeable Midwest advisory firm find an adviser with a small, successful practice that would be a good fit to eventually take over their business.
Despite the statistics on the aging adviser force, it still appears to be a seller’s market, with many more would-be buyers hunting for opportunities than older owners ready to give up the business. Succession Link, which provides an online marketplace for buying and selling financial advisory practices, now has 41 advisers listing practices for sale and 1,200 registered buyers, according to Phillip Flakes, the La Jolla, Calif., firm’s co-founder and managing partner.
With advisers aging and more media attention on succession planning, Mr. Flakes says he would expect those statistics to change over the next five to 10 years.
Another challenge to young would-be buyers: Coming up with the money. “The average-sized business is $1 million, and there aren’t that many 30 year olds who can walk up and finance a $1 million intangible asset,” says David Grau, president and founder of FP Transitions, a Lake Oswego, Ore., firm specializing in the valuation and analysis of financial-services practices.
“How do you take a seven-figure intangible asset to a group of people with no money and assets? You do it slowly over time,” Mr. Grau observes. Immediate, outright sales are rare, he said.
In a typical sale, a group of two or three 30- or 40-year-old advisers buys out a business over 10 to 15 years as they work for the firm, Mr. Grau says. “They get long-term financing and an investment that comes with a mentor and a paycheck.”
Mr. Lewis funded his purchase with a combination of his savings and a small-business administration loan from Wells Fargo Bank, a bank which is familiar with advisory firm transactions, he says. He made a partial payment initially and will pay the remainder over time, he says.
Posted by: Steven Maimes, The Trust Advisor
Reliance Trust Company announced today that its retirement strategies group exceeded $100 billion in assets under management and administration during the month of January 2014.
Retirement assets at Reliance Trust have grown at an annualized rate of 17 percent over the past five years with assets increasing from $45 billion to just more than $100 billion during that time.
“We have experienced growth in all of our business segments; specifically, institutional trust, collective investment trust funds and our special fiduciary services,” said Kent Buckles, executive vice president of the retirement strategies group at Reliance Trust.
“We continue to expand our services and capabilities to meet the needs of retirement plans, TPAs, RIAs, insurance companies, investment companies and public and private companies,“ echoed Bill Harlow, president of Reliance Trust.
Harlow and Buckles cited a press release Reliance Trust issued in early January 2014, that the combination of industry leading sub-advisors on its collective investment trust funds and world-class, back-office services have been key factors further propelling the company’s growth.
About Reliance Financial Corporation
Reliance Financial Corporation is a privately held, Atlanta-based diversified financial services and wealth management company with more than $131 billion in assets under management and administration. Reliance conducts business throughout the United States through its trust companies, Reliance Trust Company based in Georgia (one of the largest independent trust companies in the country) and Reliance Trust Company of Delaware, and its other subsidiar ies and affiliated offices. Reliance offers a full array of trust and wealth management, investment, retirement plan and outsourcing services to individuals, corporations and institutions, as well as to other banks, brokerage firms and insurance companies. Please visit www.reliance-trust.com for information on all of the company’s programs and services.
Source: Reliance Trust Company
Posted by: Steven Maimes, The Trust Advisor